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In 2014, the US Government Accountability Office issued a report on cost estimates for the US Air Force's program to launch national security payloads, which at the time consisted of a fleet of rockets maintained and flown entirely by United Launch Alliance (ULA). The report was critical of the non-transparent nature of ULA's launch prices and noted that the government "lacked sufficient knowledge to negotiate fair and reasonable launch prices" with the monopoly.

At around the same time, the new space rocket company SpaceX began to aggressively pursue the opportunity to launch national security payloads for the government. SpaceX claimed to offer a substantially lower price for delivering satellites into various orbits around Earth. But because of the lack of transparency, comparing prices was difficult.

The price uncertainty was largely due to the fact that the government pays both a firm, fixed-price cost for the rocket used for each ULA launch—be it an Atlas V, Delta IV, or Delta IV Heavy—as well as a cost-plus incentive fee known as an ELC contract. This ELC contact was essentially a payment to ULA to maintain "launch readiness" for critical national security payloads. And the large-rocket company, co-owned by Boeing and Lockheed Martin, put the money to good use with a perfect launch record for the federal government. To critics, however, this large, nebulous payment amounted to an anti-competitive subsidy once SpaceX began offering the Falcon 9 rocket as a viable alternative.

Now, transparency is coming to the federal launch market, allowing lawmakers to more directly compare the costs of ULA's launch vehicles against those of new space competitors, such as SpaceX. Because of the fiscal year 2016 National Defense Authorization Act, the Air Force budget request must consolidate rocket launch costs into a single budget line beginning in fiscal year 2020.

A $422 million launch?

The Air Force recently released budget estimates for fiscal year 2018, and these include a run out into the early 2020s. For these years, the budget combines the fixed price rocket and ELC contract costs into a single budget line. (See page 109 of this document). They are strikingly high. According to the Air Force estimate, the "unit cost" of a single rocket launch in fiscal year 2020 is $422 million, and $424 million for a year later.

Further Reading

This is a complex number to unpack. But based upon discussions with various space policy experts, this is the maximum amount the Air Force believes it will need to pay, per launch, if United Launch Alliance is selected for all of its launch needs in 2020. ULA launches about a half-dozen payloads for the Air Force in a given year, on variants of its rockets. Therefore, the 2020 unit cost likely includes a mix of mostly Atlas V rockets (sold on the commercial market for about $100 million) and perhaps one Delta rocket launch (up to $350 million on the commercial market for a Heavy variant).

One person who has reviewed the Air Force budget and is sympathetic to the new space industry said the following:

That is a tad more expensive than the amount ULA would ever tell taxpayers they are paying for one of its launches, and it illustrates the extent to which those taxpayers are forced to subsidize ULA in order to maintain the fiction that it is a competitive private sector company.

Essentially, then, while ULA has talked publicly about lowering the costs of its boosters for the commercial sector and the federal government, the US Department of Defense is suggesting in its budget that ULA's costs are as high as they have ever been. In response to a media query from Ars, a spokeswoman for the Colorado-based United Launch Alliance referred questions to the Air Force. (Update: On Friday morning the chief executive of United Launch Alliance, Tory Bruno, responded to the article on Twitter, calling it "misleading." He did not provide additional cost details, however.)

SpaceX costs are lower

The ULA monopoly ended when SpaceX began to compete for national security payloads alongside ULA, and launch them. (The California-based company's first national security launch, a National Reconnaissance Office spy satellite, came in May). And side-by-side the government's estimates for ULA launches, SpaceX's costs appear to be considerably lower.

For example, about 14 months ago, the Air Force awarded SpaceX an $83 million contract to launch a GPS 3 satellite. And in March 2017, SpaceX won a contract to launch another GPS 3 satellite for $96.5 million. These represent "all-in, fully burdened costs" to the government, and so they seem to be roughly comparable to the $422 million "unit cost" in the Air Force budget for 2020.

Further Reading

SpaceX sells basic commercial launches of its Falcon 9 rocket for about $65 million. But, for military launches, there are additional range costs and service contracts that add tens of millions of dollars to the total price. It therefore seems possible that SpaceX is taking a loss or launching at little or no profit to undercut its rival and gain market share in the high-volume military launch market.

The deal appears to be a good one for taxpayers, regardless. During a congressional hearing earlier this month, new Air Force Secretary Heather Wilson acknowledged this by saying, "The benefit we're seeing now is competition. There are some very exciting things happening in commercial space that bring the opportunity for assured access to space at a very competitive price." A careful reading of the new Air Force budget provides an inkling of just how great those savings might be.